Copper Industries plans to issue 8-year, 8%, $100,000 bonds paying interest on a

Question

Copper Industries plans to issue 8-year, 8%, $100,000 bonds paying interest on an annual basis, at a $1,440 premium. Which one of the following statements is true?
Answer
A. Copper's annual interest expense on the bonds will be greater than the amount of interest payments to bondholders each year.
B. The cash paid to bondholders will be $1,440 each interest period.
C. Copper will receive $98,560 as the issue price.
D. Copper's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year.

Explanation / Answer

D. The interest expense will be lower because the premium will be amortized as a debit, reducing the debit to interest expense. DR Interest expense DR Premium amortization CR Cash

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